By ALAN  LIDDLE

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DALLAS (Oct. 26, 2009 ) —More than 90 percent of the net new restaurants added by McDonald’s and Burger King in their last completed fiscal years opened overseas, illustrating the importance of international expansion to maturing U.S.-based chains.

Experts at the MUFSO international panel discussed the risks, rewards and best practices for expanding in international markets.

But while plenty of off-shore development opportunities exist for ambitious U.S.-based brands, international expansion is not an easy road to follow, observed executives participating in the “Best Practices in International Expansion and Navigating the Risks Involved” panel at the Multi-Unit Foodservice Operators conference here.

“In a lot of markets, eating out and drinking plays an even more significant role in the fabric of people’s lives than it does in the U.S.,” said moderator Richard Snead, former chief executive of T.G.I. Friday’s and Pickup Stix parent Carlson Restaurants Worldwide. “There is a lot of opportunity out there, but that opportunity is not for the weak of heart.”

Five members of the MUFSO panel here represented U.S.-based companies that, combined, operate some 24,000 quick-service and casual-dining restaurants outside the United States. The participants were Jose Armario, McDonald’s Corp., Oak Brook, Ill.; Jean Jacquemetton, Brinker International Inc., Dallas; Ned Lyerly, CKE Restaurants Inc., Carpinteria, Calif.; Julio Ramirez, Burger King Holdings Inc., Miami; and Ricky Richardson, Carlson Restaurants Worldwide, Carrollton, Texas.

A sixth panelist, American-born Henry McGovern, is chief executive of Wroclaw, Poland-based AmRest Holdings SE, a publicly traded operator of about 450 restaurants, nearly all franchised from others, in Central and Eastern Europe and the United States.

Armario, McDonald’s group president for Canada and Latin America, said would-be international players must “do your homework” to assess the economic viability of a new market and ascertain if the laws in a country of interest would protect the company’s intellectual-property rights, among other areas.

Selecting an overseas development partner “is probably the most important thing you are going to do,” Armario advised MUFSO attendees. The strongest candidate, he said, is likely to be “someone with high integrity who is a local citizen and speaks the language, who has [established] businesses, has the ability to understand the culture and who has a willingness to train.”

McDonald’s, Armario continued, found that when entering a new international market, a “joint-venture model worked best.” Later, after the company has become more familiar with a foreign trading area or as it looks to expand into smaller or less developed markets, it might open company stores in advance of offering franchises, he said.

But a franchisor interested in international growth, even before seeking qualified development partners, “needs to make a commitment in terms of investing dollars in human capital, investing dollars in infrastructure and investing seed capital, if necessary, in a particular market,” said Lyerly, CKE’s senior vice president of global franchise development for the Carl’s Jr. and Hardee’s chains.

Ramirez, Burger King’s executive vice president of global operations, said advance teams might need to begin developing suppliers for locally sourced products that meet a chain’s specifications years before the brand sells its first sandwich in a new market.

“At one time, without having any company-owned restaurants open, we had 10 people on the ground in Brazil,” the Burger King executive said.

The concept of developing global specifications, but sourcing locally whenever possible, can pay dividends, Ramirez indicated. He noted that the development of a Polish supplier for restaurant equipment has created a “competitive advantage” for McGovern’s AmRest organization, as that Burger King franchisee otherwise might need to import such goods from Germany.

McGovern, whose company also franchises KFC and Pizza Hut restaurants, said U.S. restaurant concepts typically “are nicer looking outside the United States than they are inside the United States” and generate much less drive-thru business than domestic counterparts.

In consideration of such differences, franchisors and franchisees need to “allow operating models to adjust a bit,” he said.

“While having good [franchisor] operating standards is critical,” McGovern said, international expansion gives U.S. chains a chance to “relaunch the brand” and “idealize it for local settings.”

Ricky Richardson, chief concept officer for Carlson Restaurants Worldwide, said international expansion requires flexibility.

Carlson Restaurants’ Richardson, executive vice president and chief concept officer of the company’s T.G.I. Friday’s brand, said international growth requires flexibility. In China, daily wages may be measured in single-digit numbers of dollars, while in Norway, servers are paid $33 an hour, he said, adding, “Trying to use the same business model [in those two countries] just because it is the same brand…won’t work.”

“You have got to have partners with clarity about the brand, who are passionate about the essence of that brand, and who are also creative and collaborative with you so you can figure out how to make money with it,” Richardson said.

“Typically, international markets are much more volatile” than domestic markets, said Jacquemetton, vice president of global business development for Brinker, parent of the Chili’s, Maggiano’s Little Italy and On the Border chains. Consequently, he views international expansion as one might an investment portfolio, with the goal being to diversify and thereby reduce risk.

“Looking at international [development] you have to think two or three years ahead and try to figure out which are your best countries and realize that at some point those countries will slacken in the way they develop,” he said. “At the same time you have to nurture other businesses that will take over the growth, so that your growth is steady and not like a roller coaster.”

The panelists said menus and building prototypes do at times need to be altered for international markets. “I do think there is room to play in the menu” and “respect local culture” through steps as simple as “having the right condiments,” Armario said.

Burger King’s Ramirez was among the advocates of keeping such changes to a minimum and “giving your brand its best shot” to be experienced as conceived.

He received no argument from Armario of rival McDonald’s, which fields more than half of its 32,000-plus restaurants worldwide beyond U.S. borders.

“Trust me,” Armario said, “in the majority of those [international] markets, they want what you represent. They want a taste of America or Americana.”—aliddle@nrn.com

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